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State v federal actions
DNR reviews what Alaska doing in response to change in policy direction in DC
Kristen Nelson Petroleum News
Alaska Department of Natural Resources Commissioner Corri Feige and Deputy Commissioner John Crowther talked to the House Resources Committee Jan. 31 about federal actions affecting Alaska’s oil and gas industry - and, more broadly, affecting the state, and what actions the state is taking in response.
Feige said the significant shift in policy direction at the federal level since January 2021 is reverberating through the oil and gas industry and presents specific challenges to Alaska’s industry.
The commissioner reviewed the status of North Slope production, which represents some 98% of the oil produced in Alaska. It averaged just a 1% year-on-year decline from fiscal year 16 to FY21, Feige said, driven largely by operators capturing efficiencies in field operations and well workovers and updating facilities. Prudhoe Bay unit production is up 5% due to well and facility optimization and Milne Point has seen production growth of some 20% in FY20 and FY21 due to consistent drilling. At Point Thomson, up over 40%, Feige said it had taken the operator a while to get the technology right for managing the high-pressure field. Gas is re-injected at Point Thomson and re-injection required reaching a higher pressure than the 10,000 psi in the reservoir. That was a big hurdle, but they finally got it figured out, she said.
There are also add-ons and future projects, including the Narwhal participating area at the Colville River unit where production began in December, Greater Mooses Tooth 1 in the National Petroleum Reserve-Alaska, where production began in November, and ongoing expansion and drilling at the Colville River CD5 pad and at Fiord West, with Raven Pad at Milne Point upcoming.
Projects further out include Pikka, with a final investment decision expected in the second quarter and Willow, with an estimated supplemental environmental impact state and federal record of decision by yearend and construction projected to start in 2023.
North Slope acreage Feige said the state has some 41% of its 6.8 million acres on the North Slope under oil and gas lease.
But federal acreage in the National Petroleum Reserve-Alaska, at 23.3 million, acres, is three and a half time the size of state lands, she said, and the Arctic National Wildlife Refuge at 19.3 million acres, with just 1.5 million acres, some 7% of the total, called out in section 1002 of the Alaska National Interest Lands Conservation Act of 1980, as available for oil and gas drilling. Within the 1002 area some 438,000 acres, just 2% of ANWR, was made available for leasing in 2020.
Feige said Alaskans should care about North Slope federal acreage because of potential resources. A 2017 U.S. Geological Survey estimate of mean average undiscovered and technically recoverable resources in NPR-A is 7.7 billion barrels of oil and 25 trillion cubic feet of natural gas.
Industry has been moving westward, following the geology, so federal decisions are of great concern to the state and industry.
In the coastal plain of ANWR, the 1002 area, some 1.5 million acres, the USGS mean estimate is 10.4 billion barrels of recoverable oil and 7 tcf of gas. The U.S. Energy Information Administration once estimated that full production in the 1002 area could yield 800,000 barrels per day.
Potential monies to state In NPR-A, the royalty rate varies between 12.5% and 16.67%, and although the state royalty is 0%, 50% of NPR-A royalties go into a mitigation fund and communities in the area can apply for monies out of the fund. Amounts going into that find to date have been small, Feige said, but with GMT1 and GMT2 both in production, the amounts of money will be significant, especially after Willow comes online.
Forestalling development in NPR-A impacts those communities, she said.
Deputy Commissioner Crowther said that while the state receives no royalties from NPR-A, state oil and gas production tax applies to all production in the state, as does corporate income tax, so the state does receive a direct fiscal benefit.
In ANWR, the royalty rate is 16.67%, and the state share is 50%.
Crowther said the Alaska Statehood Compact called for a 90/10 state/federal split from federal lands. Western states get 50%, he said, but another 40% goes into a reclamation fund for water resource projects. Alaska doesn’t have that need, Crowther said, so Alaska got 90%.
But, as legislation was passed, that changed. And while it wasn’t appropriate from the state perspective, 50% of something was better than 90% of nothing, he said. In NPR-A the amount was adjusted to 50% and the mitigation fund established to receive the other 50%, benefiting communities impacted by any development.
Federal actions Crowther reviewed actions the federal government can take, ranging from those requiring only a stroke of the pen to those requiring administrative process.
Over the last year there were some very significant executive orders early on, leading to secretarial orders which often lead to processes in which the public and state can participate.
One of President Joe Biden’s original executive orders was essentially a look back at actions taken under the administration of President Donald Trump, Crowther said, directing federal agencies to review actions taken during the previous 4 years which were viewed as conflicting with current national objectives and also to begin work confronting climate issues.
That executive order, EO 13990, among other actions, suspended the ANWR leasing program and began a review of the federal oil and gas leasing program.
30x30 initiative A second early order, EO 14008, was more forward looking, Crowther said, pausing new federal oil and gas leasing, directing a review of the leasing program and setting a goal of conserving at least 30% of federal lands and waters by 2030 - called the 30x30 initiative.
Crowther said more than 30% of federal lands in Alaska are already conserved and the federal government didn’t acknowledge existing conservation efforts in the state.
Feige said the amount of Alaska already in federal conservation units, 140 million acres, is 40% of Alaska.
“Do we get 10% back?” she asked.
The state will be leaning in hard on ANILCA, the Alaska National Interest Lands Conservation Act, which says no more: Congress recognized that that was it, Feige said.
Secretarial orders Following the executive orders came secretarial orders.
Those from the Department of the Interior included a temporary suspension of delegated authority, which meant decisions had to go through Washington, D.C., and one halting all activities in ANWR related to the coastal plain oil and gas leasing program.
Crowther said some things restricting activities the federal government can do immediately, and some things require federal processes which allow the state and public to participate. There is also litigation which began in the Trump administration and which the Biden administration may stop defending in court, which is why, he said, the state wants to participate, so the state can defend if the federal government doesn’t.
Delay Crowther said the federal government has a tremendous ability to delay and control the flow of action, which can be explicit or implicit, such as requiring approval from Washington, D.C., and the state has limited capacity to compel action, through court or otherwise.
And a completed federal process does not necessarily compel action, as a completed process may authorize federal programs or actions, but those can be delayed or suspended by federal agencies as they implement the program.
“Delay is denial - slow is ‘no’ spelled differently,” is how the state describes it, he said.
As for the state’s ability to compel action, Crowther said that unless statutes have specific deadlines and explicitly required actions, cases to compel are difficult to pursue, and even successful cases take time.
Statehood defense team Feige said the state’s response to federal actions in early 2021 was to stand up the statehood defense team, composed of the departments of Fish and Game, Environmental Conservation, Natural Resources, Law and policy directors from the governor’s office.
Under ANILCA Alaska has unique legal rights, rights which it asserts through advocacy, participation and litigation, citing the U.S. Supreme Court’s decision in the Sturgeon case.
Significant state resources have already been put into this effort, Feige said, pushing the federal government to respect state sovereignty and challenging overreach, and the governor is continuing to seek sufficient funding for the efforts through the budgetary process.
Key areas Feige discussed four federal policy areas key to Alaska oil and gas.
Emphasis on “climate crisis” led to the pause in oil and gas lease sales nationwide, while emphasis on fair share sees the federal government moving to increase royalties, fees and taxes on developments. That goes directly to the economics of projects, Feige said.
Another key area is an emphasis on the social cost of carbon, requiring project proponents to look at greenhouse gas emissions, evaluate for reasonably foreseeable outcomes and look at the impact on local, regional and national levels, which has resulted in a lot of litigation around pipelines and powerplants in the Lower 48.
Then there is the emphasis on protecting ANWR, Feige said, noting that of the 19 million acres in ANWR, 2% is under lease in an area set aside for that purpose in ANILCA. It is important, she said, that the public understand that this is a very small area.
NPR-A In NPR-A, there were no lease sales in 2020 or 2021, and none are expected this year.
A federal court vacated the Willow project’s permits last August, Feige said, and in October the Department of Justice declined to appeal that decision.
The project cannot move forward until a new environmental review is complete and new permits granted by the Bureau of Land Management and the Fish and Wildlife Service.
Feige said BLM is proceeding with a new environmental review and the state is participating as a cooperating agency in the review process, with a draft EIS expected in March, final EIS and federal decision in October and state permitting decisions in December, allowing construction to begin in the first quarter of 2023.
The Willow decision is important because the project is important to the state. It means jobs for Alaska and is the next big development moving westward into NPR-A, she said.
Crowther said the delay has another impact because every year of delay delays monies going into the impact fund, and with 80,000 to 100,000 bpd of production projected, that could be $500 million in a given year flowing into the fund.
Also in NPR-A, BLM has said it intends to abandon their decision for the 2020 integrated action plan and return to the 2013 IAP, and that reversion, Feige said, takes 30% more of NPR-A off the plate. There are impacts to existing leases through slow permitting process or outright denials based on climate litigations, with impact on pipeline corridors and special use areas which could end up stranding resources, she said.
Outer continental shelf Crowther said EO 13990 resumed the Obama-era withdrawal of virtually all of Alaska’s OCS from leasing, including the Chukchi, Beaufort and Bering seas.
The Biden administration rejected Trump-era proposed changes, which were based on new information in scientific reports, and were intended to improve operational flexibility to accommodate different approaches.
Cook Inlet is not part of the OCS, Crowther said, and a federal lease sale was scheduled there. The Bureau of Ocean Energy Management, BOEM, issued a draft EIS Jan. 15, 2021, but then cancelled the public notice Feb. 2 pursuant to the pause of all sales.
Following a federal judge’s order temporarily blocking the pause, BOEM re-published the draft EIS in late October.
But Crowther said that while the state continues to push to hold the sale, its future is uncertain as the current Cook Inlet outer continental shelf leasing program expires this year.
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